Social Security benefits are going up in 2024 — but over half of older Americans worry their retirement income still won't be enough to cover essentials. Here's what experts say must change

Climbing costs

Even though inflation is cooling, the majority of survey respondents reported their household expenses are still 10% higher than last year.

The three biggest spending categories for seniors, Johnson says, are housing (including heating and cooling), medical costs and food.

Housing costs have increased exponentially, with folks spending over 30% of their income on rent in some states, according to Moody’s Analytics. Although heating costs are projected to remain flat or even decrease this winter, per the Energy Information Administration.

Health-care costs were projected to grow by 5.6% in 2023 due to labor shortages and supply-chain issues, according to consulting firm Milliman.

The Centers for Medicare and Medicaid Services also announced on Oct. 12 that the standard Part B premium paid by most beneficiaries will increase $9.80 per month to $174.70 in 2024 — though this is lower than what TSCL originally forecasted.

Food-at-home prices were predicted to increase by 51% in 2023, according to the Department of Agriculture.

“The Social Security benefits are modest, only replacing about 30% of one's earnings during working years,” Johnson said.

She points to costs such as rent, health care and home and auto insurance, which she says often go up but rarely come back down.

“When this happens, the buying power of Social Security benefits erodes.”

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Low-income Americans especially impacted

Earlier this year, federal emergency COVID assistance for SNAP (food stamps) ended, putting millions of lower-income Americans at risk, with each person receiving benefits getting about $90 a month less on average, according to the Center on Budget and Policy Priorities.

This includes many older individuals who are now among the fastest-growing segment of America’s homeless population.

Meanwhile, increased COLAs have inflated incomes, which means some low-income seniors are contending with cuts to their safety net benefits. Some started paying taxes on a portion of their Social Security benefits for the first time — and the SCL expects even more beneficiaries to face taxation next year thanks to last year’s hefty lift.

Currently, seniors pay taxes on up to 85% of their Social Security benefits, depending on their income threshold.

Your benefits may be taxable based on what the SSA calls your “combined income,” which includes your adjusted gross income (AGI), non-taxable interest and 50% of your Social Security benefits. If you’re married and filing jointly, calculate your total combined income by adding half of your Social Security benefit and half of your spouse’s benefit to the sum of both your AGIs plus non-taxable interest.

So, if you’re filing a federal tax return as an individual and your income is between $25,000 and $34,000 (between $32,000 and $44,000 for couples filing jointly), you may have to pay income tax on up to half of your benefits. Folks who earn more than $34,000 (or $44,000 for couples) will pay taxes on up to 85% of their benefits.

What needs to change?

The Social Security taxation thresholds were set way back in 1984 and haven’t been adjusted for inflation. The SCL advocates for updating the numbers to today’s dollars — for example, the minimum individual income threshold would nearly triple from $25,000 to over $74,000.

The issue remains that the tax revenue is a major source of funding for Social Security benefits themselves, as well as Medicare trust funds. The Social Security Trust fund is projected to receive $840 billion in tax revenues from 2023 to 2032, according to TSCL — but the SSA says it will run low by 2033, meaning recipients will begin to only receive about 77% of their benefits.

Johnson points out that Social Security is partially financed also by a payroll tax, with workers paying taxes on 6.2% of their wages, up to $160,200 as of 2023.

Earlier this year, Congressman John Larson (D-CT) proposed legislation that would modestly increase Social Security taxes paid by higher-wage earners and raise the minimum thresholds at which Social Security is taxed to $35,000 for individuals and $50,000 for couples instead.

The bill would also change how the COLA is determined. Currently, the COLA is calculated using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) — which does not survey the costs of retired households over the age of 62.

Larson recommends using either the CPI-W or the Consumer Price Index for Americans 62 years of age and older (CPI-E) to calculate the COLA, depending on whichever measure is higher.

Johnson released an analysis detailing how this would boost benefits, providing more protection against inflation and greater benefit growth over time.

By using the CPI-E instead of the CPI-W for next year, seniors would receive a 4% COLA instead — nearly a percentage point higher than what the SSA announced.

Johnson’s analysis also found that using the higher of the two benefits over the last decade would have provided an extra $3,787.80 more to seniors from 2014 through the end of 2024.

With files from Vawn Himmelsbach